In 2018, the patent system began experiencing a series of changes that tended to favor patent plaintiffs, and some of those same trends accelerated in the first quarter of 2019.
Plaintiffs have continued to adjust to the US Supreme Court’s TC Heartland decision by exploring new venues for filing infringement litigation, while judicial uncertainty over certain aspects of venue law not addressed by that opinion threatens to reestablish nationwide venue for certain defendants. The Federal Circuit’s 2018 decisions in Berkheimer and Aatrix have continued to fuel an ongoing debate over the proper standards for patent eligibility, with the USPTO attempting to clarify perceived uncertainties with new guidance on Section 101. Additionally, the Patent Trial and Appeal Board (PTAB) saw its 10,000th petition in Q1, reaffirming the key role that America Invents Act (AIA) reviews play in litigation defense. The dust has also begun to settle from recent judicial challenges affecting the Board.
Meanwhile, the patent marketplace continued to see activity from entities both new and established. Fortress Investment Group LLC, an increasingly prolific filer of new litigation, encountered significant pushback from certain defendants that have questioned the nature of its partnership with Australian NPE Uniloc Corporation Pty. Limited. Leadership turnover at certain NPEs has also spurred further changes, including the apparent resurgence of Acacia Research Corporation and the arrival of a new monetization firm formed by an alumnus of IPValuation Partners LLC (d/b/a IPVal). Patent divestitures continued to be a driver of new litigation in the first quarter, with multiple NPEs acquiring and asserting patents received from Intellectual Ventures LLC (IV) as well as from various operating companies.
Furthermore, momentum has been steadily growing in Congress for legislative reform on patent eligibility, pursued by the Senate Judiciary Committee’s newly reconstituted Subcommittee on Intellectual Property. However, USPTO Director Andrei Iancu—once a proponent of a legislative fix for Section 101—has begun urging stakeholders and courts alike to take a fresh look at existing caselaw, arguing that there is far less uncertainty than the popular narrative suggests.
Litigation Update: Overall Filings Dip Due to Operating Company Slowdown, but NPE Activity Ticks Upward
Patent litigation filing levels declined during the first quarter of 2019: 793 defendants were added in Q1 overall, a 12.6% drop from the year-ago quarter and a decrease of 7.3% from the fourth quarter of 2018.
During the first quarter, NPEs added 434 defendants to patent cases, 12.7% more than were added in the first quarter of 2018 and 6.4% more than were added in Q4 2018.
For their part, operating companies added 359 defendants in Q1 2019, down 31.2% compared to the first quarter of the previous year and 19.7% below the fourth quarter of 2018.
Patent Venue: The Rise of the Western District of Texas and Continued Judicial Uncertainty on Venue Law
The US Supreme Court caused a realignment in patent venue through its decision in TC Heartland. By holding that a corporate defendant “resides” for venue purposes only in its state of incorporation, the Court raised the bar for patent plaintiffs to sue certain companies in districts once popular with NPEs. The result has been that the Eastern District of Texas fell well behind Delaware by the number of defendants added to litigation campaigns. As of the end of the first quarter of 2019, nearly two years after TC Heartland, that trend has continued: the Eastern District of Texas was the second-most popular district overall, accounting for just 16% of overall litigation by defendants added, with Delaware holding first place at 41%. The Eastern District accounted for a slightly higher share of NPE litigation at 22%, behind Delaware’s 44%, but was the fourth-most-popular district for operating company litigation at 9%.
The Western District of Texas: Judge Albright Takes the Reins
Notably, the Western District of Texas now appears in the top five for litigation filed by NPEs, holding the fourth spot with 7% of defendants added (slightly behind the Northern District of California, and just ahead of the Central District of California). The Western District has seen a surge of interest since the September 2018 swearing-in of its new district judge, Alan Albright, a seasoned patent litigator and former magistrate judge. Judge Albright has made no secret of the fact that he wants to make his district the new hotbed for patent litigation, reportedly engaging in outreach to bar associations to encourage the filing of patent cases in his district.
Additionally, Judge Albright’s district has garnered attention through the standing order he issued for patent cases in January, which incorporates some rather unique rules—for example, most discovery cannot take place until after the Markman hearing, while parties also have greater freedom to amend their contentions later in a case. In addition, the order makes Judge Albright a gatekeeper for the discovery process, as parties must meet and confer and then contact chambers before filing a motion to compel discovery. Judge Albright has also publicly stated that he will not stay cases pending the outcome of inter partes reviews (IPRs) absent special circumstances, as he believes that patent owners deserve jury trials in federal court.
The Western District of Texas’s rise may also be aided partly by the second prong of the patent venue statute, which allows patent suits to be filed where a defendant “has committed acts of infringement and has a regular and established place of business”. The second prong has increasingly been used to support venue in the wake of TC Heartland. Unlike the Eastern District, where fewer businesses have active operations, the Western District includes tech hotspot Austin, where many large companies have a significant presence. As a result, plaintiffs newly eyeing the Western District may be able to establish venue there more easily for many frequent defendants.
Judicial Debates on Venue: The TC Heartland Workaround?
Additionally, courts have split as to the proper standard for determining whether a defendant has a “regular and established place of business” in a given district. While the Federal Circuit’s 2017 ruling from In re: Cray provided some general guidelines—a defendant must have “a physical place in the district”; that place of business must be “regular”, meaning “transient activity” is not enough; “established”, meaning that the business location must have been stable and established for a “reasonable period of time”; and “of the defendant”, meaning a place not solely controlled by an employee—courts have applied Cray inconsistently.
Of particular importance is the ongoing debate over how to apply that prong for companies that use servers for e-commerce. Last year, the Federal Circuit declined to overrule a decision by District Judge Rodney Gilstrap of the Eastern District of Texas, in Seven Networks v. Google, that Google servers maintained within third-party facilities in the Eastern District constituted a “regular and established place of business”. The appeals court refused to revisit that decision in early February. Circuit Judge Jimmie Reyna has sharply criticized his colleagues for refusing to take up the issue, warning that venue law would be dramatically overextended if courts were to follow Judge Gilstrap’s lead. This approach would effectively reestablish “nationwide venue” for many companies despite TC Heartland, he predicted, given the extent to which businesses that engage in e-commerce routinely rely on routers and other computer equipment used analogously to the Google servers at issue in Seven Networks.
Supreme Court Preserves Nationwide Venue for Foreign Defendants
While significant uncertainties thus remain for domestic companies, a key issue regarding venue against foreign corporations was resolved in the first quarter of 2019. Last year, in In re: HTC, the Federal Circuit decided not to revisit the alien venue rule, a long-standing principle (presently codified in 28 USC Section 1391(c)(3)) under which foreign defendants fall outside all federal venue laws—thus allowing foreign defendants to be sued in any district. On February 25, the Supreme Court declined to take up the issue, effectively affirming the Federal Circuit’s decision. As a result, the alien venue rule will likely remain the law for the foreseeable future, exposing foreign corporate defendants to patent risk in virtually any district—although a plaintiff must still show that a given foreign corporation committed acts of infringement in its chosen venue.
Patent Eligibility: The Supreme Court Considers Berkheimer as the USPTO Releases New Guidance
Last year, the Federal Circuit spurred a significant shift in Section 101 jurisprudence through its decisions in Berkheimer v. HP and Aatrix Software v. Green Shades Software, in which it held that Rule 12 and summary judgment motions brought under Section 101 cannot be granted if the plaintiff properly raises a factual dispute over whether a patent contains an inventive concept.
Those decisions have threatened defendants’ ability to bring early Alice challenges and have raised questions about whether patent eligibility will ultimately become an issue not properly raised until much closer to trial, or even later. Meanwhile, courts have continued to debate whether Berkheimer and Aatrix change the underlying nature of the Section 101 analysis; the Federal Circuit itself has become divided over whether those decisions have improperly elevated the role of facts into a determination that has historically been considered a pure question of law.
That debate may soon come before the Supreme Court, which on January 7, 2019 requested the views of US Solicitor General Noel Francisco as to the certiorari petition filed by HP last September in the Berkheimer case. In that petition, HP framed the core issue as the nature of the Alice test itself, arguing that the test clearly remains a question of law under Supreme Court precedent. The Solicitor General has not yet filed that brief, but its contents will likely be instructive given the historically influential nature of such filings—a recent Law360 analysis indicates that the Supreme Court generally agrees with the views of the Solicitor General, when requested.
The USPTO has also updated its examination procedures in response to recent developments in Section 101 jurisprudence. In January 2019, the Patent Office released long-awaited guidance on Section 101 that revamped the examination process with respect to the “abstract idea” step of Alice (step one), laying out certain types of subject matter that are always abstract (based on a review of existing caselaw) and establishing how, if a claim is found to contain a “practical application” of an abstract idea, it is not “directed to” that idea (and thus passes the Alice test at the first step). This guidance follows an April 2018 memorandum issued in response to Berkheimer that refined how examiners should apply the “inventive concept” step of the Alice analysis (step two), tightening the evidentiary requirements for showing that a patent’s claims are directed to “well-understood, routine, and conventional activity” and theoretically making the process less subjective.
An in-depth analysis of these and other developments related to Section 101 can be found in the public excerpt of RPX’s recent Patent Litigation and Marketplace Report.
PTAB: A Filing Milestone and a Revised Claim Amendment Process
In the first quarter of 2019, 339 petitions for America Invents Act (AIA) review were filed with the PTAB, including 322 petitions for IPR, three petitions for covered business method (CBM) review, and 14 petitions for post-grant review (PGR). In total, these figures represent a 29% decrease over the previous quarter and a 17.3% decrease over Q1 2018.
Additionally, the end of the first quarter saw the filing of the 10,000th petition for AIA review. This milestone reflects the key counterbalancing role that the PTAB has played in patent litigation over the past several years, with AIA reviews giving defendants the ability to challenge patent validity early and without months of costly litigation—allowing them to potentially resolve patent disputes more quickly.
Supreme Court Declines to Revive Tribal Sovereign Immunity Defense
Judicial activity involving the PTAB has largely settled down following an eventful 2018, which saw the Supreme Court uphold IPR’s constitutionality in Oil States and ban the PTAB’s prior practice of issuing partial institution decisions in SAS Institute. However, the Supreme Court did resolve one lingering area of uncertainty for the PTAB shortly after the end of Q1 2019 by declining to grant certiorari in Saint Regis Mohawk Tribe v. Mylan Pharmaceuticals (2018-0899), ending a controversial patent-shielding strategy first used in late 2017 by a Native American tribe and its counsel. Under that strategy, the Saint Regis Mohawk Tribe acquired certain patents from pharmaceutical company Allergan and NPE SRC Labs, LLC, hoping to shield those assets from IPR using the tribe’s sovereign immunity. However, in February and July 2018, the PTAB and Federal Circuit each ruled that the tribe could not assert its immunity against IPR, although they each reached that conclusion on markedly different grounds from one another.
PTAB Reforms: New Amendment Program Takes Effect as PTAB Panel Refines Board Precedent
The first quarter also saw the PTAB implement a new pilot program for a revised AIA review claim amendment process. This pilot program, originally revealed in October 2018, was a response to past complaints that the original process—allowing the patent owner to file a single motion to amend, with a single reply in opposition and the Board providing no ruling until the final decision—made it too difficult for patent owners to amend claims. Under the new system as originally proposed, patent owners would have just six weeks to move to amend, with petitioners given six weeks to respond. The PTAB will then issue a non-binding, preliminary ruling on the motion, and if the Board decides that the patent owner’s motion is likely to fail, the patent owner can file a new motion that revises the proposed substitute claims in response.
The final version of the pilot program, implemented on March 15, 2019 and set to last for at least a year, includes a variety of changes in response to feedback from various industry stakeholders. Most notably, in light of comments that the proposed timeframe was too compressed, the motion to amend deadline was extended to 12 weeks, with the deadline for the petitioner’s response to that motion pushed to 12 weeks after that, aligning those deadlines with those for the patent owner’s response to the petition and the petitioner’s reply, respectively. The timing for the oral hearing was also extended from nine to ten months after institution for the new system. In addition, patent owners will have the option of using the old system if they prefer the status quo.
RPX will monitor this new system’s impact on claim amendment rates in the months ahead.
Patent Marketplace: Fortress Digs In, New and Old Players Ramp Up Litigation, and Assertion of Former IV Patents Continues
The patent marketplace has evolved significantly over the past few years, and as formerly dominant players like Intellectual Ventures LLC (IV) have scaled back their acquisition and assertion activities, others have stepped in to fill the void.
Fortress: Uniloc Litigation Reveals a Tangled History
One of the most prominent of those newer market entrants has been Fortress Investment Group LLC, which began its involvement in patent litigation by funding the campaigns of other NPEs and has since become a prolific litigant in its own right. Last year, it began one of its most aggressive assertion campaigns yet through a partnership with Australian NPE Uniloc Corporation Pty. Limited (Uniloc). After apparently funding Uniloc’s litigation at least as far back as December 2014, Fortress appears to have taken over a substantial portion of its assertion efforts in May 2018, when a Fortress subsidiary (Uniloc 2017 LLC) acquired the bulk of the NPE’s patent portfolio as part of a complex set of agreements between Fortress and Uniloc.
Those agreements are now the focus of an ongoing dispute over standing in litigation with Apple and Lenovo (Motorola Mobility). The defendants have argued that because Uniloc purportedly defaulted under those agreements by failing to hit its revenue targets, among other reasons, rights in the asserted patents had shifted from Fortress to Uniloc—thus depriving the latter of standing to sue. In February 2019, District Judge William Alsup rejected that argument as to Apple’s litigation, but the company has continued to push back by filing a motion for reconsideration, also in February. Additionally, Uniloc has fought to keep its licensing information confidential as the Electronic Frontier Foundation seeks to unseal related documents in that litigation, after moving to intervene for that purpose.
This standing dispute is just the latest development in Uniloc’s tangled litigation history. A recent RPX analysis details more than 15 years of turbulence and reveals further details on the Fortress-Uniloc relationship through an in-depth review of public records.
Acacia Returns with New Leadership and Litigation
As Fortress expands its assertion strategy, another formerly active player—publicly traded NPE Acacia Research Corporation—appears poised for a resurgence. While Acacia has not launched any US litigation campaigns since mid-2015, the NPE underwent a sweeping leadership change last August that saw the resignation of three board members, the announcement that three of its top executives would transition out of the company, and the appointment of a new “chief intellectual property officer”, Marc W. Booth. Since then, Acacia has rebooted a number of its litigation campaigns, most recently the cellular voice codec campaign waged by its subsidiaries Saint Lawrence Communications LLC and EVS Codec Technologies, LLC. Acacia seems to be gearing up for additional litigation later this year; in a recent earnings call, the NPE disclosed that its IP licensing team is expected to “research and process” $20M of new IP capital expenditure in 2019.
Endpoint IP, IPVal Cofounder’s New Firm, Ramps Up Litigation
Meanwhile, leadership turnover at another prominent NPE, IPValuation Partners LLC (d/b/a IPVal), has led to the rise of a new player in patent monetization. Last summer, IPVal cofounder Jonathan Szarzynski left the firm, forming Endpoint IP LLC in August and reportedly taking with him over 20 patent assertion entities that once fell under the IPVal banner. Endpoint has since acquired multiple patent portfolios from IV, with some of those assets already in litigation. In March, Endpoint’s Aido Mobility LLC launched a new campaign targeting various companies’ mobile apps, asserting a series of personalized web content patents acquired from IV in mid-January. At least one more Endpoint IP affiliate seems poised to assert IV patents: in December, Endpoint affiliate Aido LLC acquired an international patent portfolio from IV, including imaging, data processing, and video patents that variously originated with Lenovo (Motorola Mobility), SK Hynix, and SRI (Sarnoff). That assignment was made public in January.
Quest Patent Research Corporation Continues Acquisitions from IV
Another NPE that has focused on the acquisition and assertion of IV assets is publicly-traded Quest Patent Research Corporation (QPRC). In March, QPRC acquired another portfolio from IV through subsidiary M-Red Inc., comprising patents originating with BAE Systems, Conexant, Cypress Semiconductor, Honeywell, Philips, MagnaChip, STMicro, or UMC, among others. M-Red began asserting a subset of those patents in late April. QPRC also has four other active campaigns asserting patents received from IV, including two in which IV holds a continuing financial interest according to QPRC’s public disclosures.
Dominion Harbor Continues Acquiring and Asserting Operating Company Assets
Certain NPEs have also continued to acquire patents acquired directly from operating companies, including Dominion Harbor Enterprises, LLC, an affiliate of which—Sovereign Peak Ventures, LLC (SPV)—obtained over 175 US assets from Panasonic in March. The assignments were recorded with the USPTO on April 9 and may be part of a larger acquisition. In a press release announcing the transaction, Dominion stated that SPV will “exclusively represent Panasonic’s portfolio of 1,000 top-notch wireless and smart speaker patents”. This latest transfer follows an October 2018 assignment from Panasonic to SPV, which according to Dominion involved over 3,500 assets—a subset of which SPV has asserted in a litigation campaign that it launched in December.
Private Equity Firm Buys PanOptis
In February, Brevet Capital—a private equity firm based in New York—announced that it had purchased multiple entities affiliated with Leslie Ware’s PanOptis Holdings, LLC, including litigating NPEs Optis Cellular Technology LLC; Optis Wireless Technology, LLC; and Unwired Planet, LLC. This acquisition is just the latest of multiple restructurings for PanOptis that have taken place in the last three years, including one that followed its June 2016 acquisition of Unwired Planet, Inc.’s licensing business and another in March 2017 when it joined Avanci, the Internet of Things (IoT) licensing platform headed by Kasim Alfalahi. Weeks after the announcement of the Brevet acquisition, PanOptis filed its first new infringement case in two years, asserting patents declared essential to the LTE standard.
Patent Policy: Congress Tackles Section 101 Reform as Director Iancu Speaks Out
Intellectual property reform has not been a top priority for Congress over the past few years, but in recent months legislators have shown a renewed focus on patent issues amidst growing calls for change. In February, the Senate Judiciary Committee revived its Subcommittee on Intellectual Property, which had been dormant since 2007. The subcommittee, led by Senators Thom Tillis (R-NC, chairman) and Chris Coons (D-DE, ranking member), has taken on the issue of Section 101 reform, and the two senators have been outspoken in their assessment of the current state of the law. Senator Tillis called the governing law on eligibility a “total mess” in a March 26 speech at the LeadershIP conference, while Senator Coons has called Section 101 a “very thorny issue” and has stated that the current state of patent law overall “discourages innovation”.
To that end, the subcommittee has held three private roundtables with a variety of industry stakeholders to establish a series of principles for an upcoming bill on Section 101. On April 17, the subcommittee released a bipartisan framework for a bill slated for introduction this summer. The proposed changes, some of which overlap with the USPTO’s January 2019 guidance, include the elimination of the requirement that any invention or discovery be both “new and useful”, defining exclusive categories of statutory subject matter and statutorily eliminating judicial exceptions, and requiring that “eligibility [be] determined by considering each and every element of the claim as a whole” (and not by using criteria properly addressed under Sections 102, 103, and 112).
As Congress moves to take a greater role in the debate over patent eligibility, USPTO Director Andrei Iancu has continued to speak out on Section 101. Last year, Iancu stated that he would be open to working with Congress and stakeholders on legislative reform, but in the wake of the USPTO’s January guidance—which builds on the status quo by synthesizing existing eligibility caselaw—he has explicitly declined to take a position on any legislative proposals. At a University of Akron School of Law symposium held in late March, Iancu said that the USPTO has not taken a “formal position . . . on whether [a legislative solution] is needed or not and what it should look like if something happens”. Furthermore, at that same symposium, he suggested that the current narrative of uncertainty may be the result of some observers “over-reading . . . recent cases” on patent eligibility. Iancu has also directly called on the Federal Circuit to revisit its approach to Section 101, urging it in a February speech to “to re-look at the Supreme Court precedent very carefully and reassess whether, in fact, it is that constraining”.
Additional RPX Intelligence
RPX recently released its Patent Litigation and Marketplace Report, a members-only publication that provides a comprehensive analysis of the significant changes that the patent industry experienced in 2018. The report covers a variety of topics at an unprecedented level of detail, including notable trends in district court and Federal Circuit litigation, the Patent Trial and Appeal Board, marketplace and pricing trends, patenting, and patent litigation in China.
Download an excerpt of the report to read the high-level findings and an in-depth section addressing issues surrounding Section 101.
For further analysis and up-to-date information on patent litigation and market trends, visit RPX Insight.